* U.S. Treasury yields back above key 3 pct level
* China reports soft investment and retail data, home sales drop
* Turkey President Erdogan pledges to tighten grip on economy
By Karin Strohecker
LONDON, May 15 (Reuters) - Soft China data, a perky dollar and rising U.S. Treasury yields cast a cloud over emerging markets on Tuesday as stocks snapped a six-day winning streak and Turkey and Argentina saw their currencies tumble to fresh record lows.
MSCI's emerging market index fell nearly 1 percent with bourses from Russia to Turkey and South Africa weakening around 0.7 percent.
Heavyweight Hong Kong racked up some of the steepest losses, falling more than 1 percent after China reported weaker-than-expected investment and retail sales in April and a drop in home sales, clouding the economic outlook as Beijing's policymakers try to navigate debt risks and defuse a heated trade row with the United States.
But stocks in mainland China ended their trading day higher, underpinned by a rally in late trading thanks to optimism over the MSCI inclusion of 234 Chinese large-caps from June 1.
However, many emerging market currencies took a hit as U.S. Treasury yields again traded above the psychological 3 percent level, supporting the dollar which strengthened for a second straight session.
Turkey's lira plumbed new lows after President Tayyip Erdogan pledged to tighten his grip on the economy following the June 24 elections.
The lira has weakened 14 percent since the start of the year, with investors growing increasingly concerned over the central bank's independence and capability of fighting inflation which has remained stubbornly high in the double digits.
Yields on Turkey's benchmark sovereign 10-year bond jumped to a fresh record high of 14.5 percent while the cost of insuring exposure to its sovereign debt also rose.
"President Erdogan has a very unorthodox view on the monetary policy arguing that if interest rates fall, inflation will decelerate as well," Rabobank's Piotr Matys wrote in a note to clients.
"Combining this unorthodox view with Erdogan's explicit declaration that he intends to influence monetary policy reignited market concerns that the central bank may not be able to raise interest rates to support the lira."
Argentina was another major victim, with the peso plunging more than 6 percent on Monday to another record low despite hefty central bank interventions in the past few days and policy makers jacking interest rates up to 40 percent in an attempt to stop the peso's slide.
Argentina requested a "high access stand-by arrangement" from the IMF last week after the peso depreciated rapidly, with the currency now having lost a quarter of its value in 2018.
The International Monetary Fund said on Monday it supported Argentina's floating exchange rate regime after Buenos Aires requested a "high access stand-by arrangement" from the fund last week.
But currencies elsewhere did not escape the selling pressure. South Africa's rand weakened 0.8 percent while Russia's rouble softened 0.2 percent, with a slight gain in crude oil prices softening the blow.
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(Reporting by Karin Strohecker Graphic by Sujata Rao Editing by Andrew Heavens)